Equity markets drop amid continued volatility, bond yields flat

Frederick Owens
February 11, 2018

That bear market caused the S&P 500 to lose almost half its value before its pullback ended 2½ years later.

The CBOE Volatility index, the closely followed measure of expected near-term stock market volatility, jumped 20 points to 30.71, its highest level since August 2015.

Bond prices fell slightly.

World stock markets suffered sharp losses this morning as a global selloff - rooted in fears of rising USA interest rates - showed no sign of abating. Yields on the 10-year Treasury note climbed near 2.9 percent, indicating the price of the bond was falling.

In early trading, France's CAC 40 lost 0.4 percent to 5,144.35, adding to Thursday's 2 percent decline, and London's FTSE 100 shed 0.3 percent on top of the previous day's 1.5 percent retreat.

But, while pricier valuations are one factor behind the sell-off, a bigger driver is the move by the US Federal Reserve to tighten monetary policy by raising interest rates in the face of rising wages and fears of an uplift in inflation. Chipmaker Nvidia was up about 6.7% in premarket trading after its upbeat results and forecast.Expedia shares sank 14.5% after the online travel services company said costs would outpace revenue growth this year as it battles rivals for market share.

The pullback came amid another spurt higher in Treasury bond yields, a focal point for investors concerned that the Fed may accelerate rate hikes if inflation rises suddenly.

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"A correction is a reverse movement, usually negative, of at least 10 per cent in a stock, bond, commodity or index to adjust for an overvaluation".

Thursday marked another day of sharp swings in recent sessions including the S&P 500's biggest drop in more than six years that pulled equities away from record highs. The Nasdaq Composite closed at 7,051.98 for a loss of -63.90 points or -0.90%.

On Wall Street, many companies that rose the most over the a year ago have borne the brunt of the selling.

But those losses capture only a part of the action in markets on Thursday.

It's the second time this week it has fallen over 1,000 points. The index is down 15.4% since hitting a recent peak in late January. On the Nasdaq, 1,981 issues rose and 438 fell.

World stocks were also on track for their worst week since 2011, weighed down by a 4 percent drop in Chinese stocks. Trump has frequently taken credit for the rise of the stock market during his presidency, though the rally and economic recovery began during the Obama administration. Even after this week's losses, the S&P is up 12.5 percent over the past year.

The crucial question for today's long-term investors, of course, is does the selling stop here or do we plunge another 10% or so into official bear market territory?

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